Pestle Analysis

 PESTLE ANALYSIS 

PESTLE

is

an

acronym

for  Political,

Economic,

Social,

assess Technological, Legal and Environmental factors, which are used to assess the market for a business or organizational unit strategic plan (also o know known n as the the STEE PEST analysis analysis (als STEER, R, STEE STEEP, P, DESTEP, DESTEP, model) l) stan stands ds for for "Political, STEP, STE P, PESTE, PESTE, PESTEL PESTEL,, or  PESTLE mode echnological cal analysis" analysis" and describes describes a framework  framework  Economic, Social, and Technologi of macr macroo-en envi viro ronm nmen enta tall fact facto ors used used in the the environmen environmental tal scanning scanning component of  strategic management. management . The model has recently been further  extended to STEEPLE and STEEPLED, adding education and demographics factors. It is a part of the external analysis when conducting a strategic analys analysis is or doing doing market market research research and and give givess a certa certain in over overvi view ew of the the different macro environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or  decline, business position, potential and direction for operations. The growing importance of environmental or ecological factors in the first first deca decade de of the the 21st 21st cent centur ury y have have give given n rise rise to green business business and encouraged widespread use of an updated version of the PEST framework. STEER analysis analysis systematic systematically ally considers considers Socio-cult Socio-cultural, ural, Technolog Technological, ical, Economic, Ecological, and Regulatory factors.

The Model's Factors

1. POLITICAL FACTOR 

Political factors or how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services

which the government wants to provide or be provided ( merit goods) and those that the government does not want to be provided ( demerit goods or  merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

2. ECONOMIC FACTOR 

Economic factors

include

economic

growth,

interest

rates,

exchange rates and the inflation rate. These factors have major impacts

on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy.

3. SOCIAL FACTOR 

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an ageing  population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

4. TECHNOLOGICAL FACTOR 

Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of  technological change. They can determine   barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

5. ENVIRONMENTAL FACTOR 

Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness to climate change is affecting how companies operate and the products they offer--it is both creating new markets and diminishing or destroying existing ones.

6. LEGAL FACTORS

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law . These factors can affect

how a company operates, its costs, and the demand for its products. The PEST or PESTLE Analysis

Originally designed as a business environmental scan, the PEST or PESTLE analysis is an analysis of the external macro environment (big picture) in which a business operates. These are often factors which are beyond the control or influence of a business, however are important to be aware of  when doing product development, business or strategy planning. It is important to take into account PESTLE factors for the following main reasons: •

Firstly, by making effective use of PESTLE analysis, you ensure that what you are doing is aligned positively with the powerful forces of  change that are affecting our working environment. By taking advantage of change, you are much more likely to be successful than if your activities oppose it.

•

Secondly, good use of PESTLE analysis helps you avoid taking action that is likely to lead to failure for reasons beyond your control.

•

Thirdly, PESTLE is useful when you start a new product or service. Use of PESTLE helps you break free of assumptions, and helps you quickly adapt to the realities of the new environment

Introduction to the PESTLE Analysis tool PESTLE analysis is a useful tool for understanding the “big picture” of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats.

Specifically the PEST or PESTLE analysis is a useful tool for  understanding risks associated with market growth or decline, and as such the position, potential and direction for a business or organization. The PESTLE Analysis is often used as a generic 'orientation' tool, finding out where an organization or product is in the context of what is happening out side that will at some point effect what is happening inside an organization. A PESTLE analysis is a business measurement tool, looking at factors external to the organization. It is often used within a strategic SWOT analysis (Strengths, Weaknesses, Opportunities and Threats analysis).

The PESTLE analysis headings are a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea. There are many variants on this model including PEST analysis and STEEPLE analysis. Completing a PESTLE analysis can be a simple or complex process. It all depends how thorough you need to be. It is a good subject for  workshop sessions, as undertaking this activity with only one perspective (i.e. only one person’s view) can be time consuming and miss critical factors.

PEST ANALYSIS OF LIFE INSURANCE INDUSTRY IN INDIA

A. POLITICAL FACTORS: 1. INCREASED SERVICE TAX ON PREMIUM: The imposition

of service tax on the services provided by the insurers has been increased significantly over past few years by the government. 2. ENDING OF GOVERNMENT MONOPOLY : A great revolution

in the insurance sector came in the year 1999 when IRDA passed the bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. 3. INCREASE IN FDI LIMIT: The hike in the insurance foreign

direct investment (FDI) limit to 49 per cent from 26 per cent has  proved to be very beneficial for the insurance industry in India. It has encouraged foreign investors to invest in Indian insurance industry. 4. FAVOURABLE REGULATIONS FOR RURAL INSURANCE:

To encourage insurance sector to increase its spread in rural India, government has made regulations more favorable for rural  people by decreasing the amount of premiums, introducing new group insurance plans and various other special plans for farmers.

B. ECONOMIC FACTORS:

1. INCREASE IN GROSS DOMESTIC SAVINGS : The gross

domestic

savings

of

people

in

India

have

increased

significantly, due to which they are moving towards new ways of investing money for the future benefits including various insurance plans. As compared to previous year i.e.2007, the insurance industry thus expected to grow by about 40% during this fiscal year, i.e.2008. 2. CONTRIBUTION TO COUNTRY’S G.D.P: According to

government sources, the insurance and banking services’ contribution to the country’s gross domestic product is 7% out of which the gross premium collection by various insurance companies forms a significant part. 3. ROLE

IN GOVT.

SECURITIES

MARKET: Insurance

companies are fest emerging as one of the most prominent  players in the govt. securities market. The share of insurance companies in overall investment in the G-sec market has more than doubled to 23% during 2007-08 from 9% during the  previous fiscal year. 4. BIGGEST DOMESTIC PLAYER IN EQUITY MARKETS:

According to RBI’s annual report for 2007-08, the insurance companies invested Rs. 35880 crore in the G-sec market, which is over 173.06% higher than the Rs.13880 crore they invested in 2006-07. Thus insurers have emerged as the biggest domestic institutional players in the equity markets.

C. SOCIAL FACTORS : 1. LOW INSURANCE COVERAGE: In India insurance is considered as

which is pushed upon the customers to buy. People are unwilling to buy insurance due to lack of awareness. 2. INCREASE IN LIFE SPAN AND RISE IN ELDERLY POPULATION:

In India life span has increased over past few years due to which the elderly population in India is rising day by day. To live a happy and independent life, more no. of educated peoples is moving towards investing in insurance to ensure a respectful and independent life even in old age. 3. UNCERTAINITY ABOUT LIFE: Due to increasing no. of events of 

terrorist attacks in various parts of the country, people have started viewing life as more uncertain. It has developed a kind of fear factor in the minds of people leaving them more worried about their family and kids. Due to this reason they are moving more and more towards buying insurance policies in order to secure their family’s future. 4. CHANGING INDIAN PERCEPTION: In India earlier people used to

view insurance as a tax saving device or as a method of investment. But, nowadays a great change in the perception has come. People have started realizing the importance of getting insured. Now more no. of people is viewing it as a transfer of risk for a good future. 5. CHANGE IN FAMILY SYSTEM: Since past, joint family system was

the most prevalent in all the stratus of Indian society. At that time, in case of a man’s death, there were other people in the family to take care of his wife and kids. But, with the passage of time, a big change in our  culture has come. More no. of people is moving towards nuclear family

system. In today’s scenario there is no one to help a widow and her kids  because everyone is busy with his/her family. In such a situation more no. of people are opting for insurance to secure their spouse and children’s future. 6. INCREASE IN LIFE STYLE DISEASES: Due to modernization, the

life has become very fast. Many changes have taken place in the life style of people, due to which a large no. of new life style diseases have made their place in our country. Thus, more no. of people is opting for  health insurance etc to lead a better and more secured life.

D. TECHNOLOGICAL FACTORS: 1. AUTOMATION OF PROCESSES:   Nowadays, with advancement in

technology the whole process of insurance has become automated. Earlier it used to take 15days to 45days for the issuance of policy documents. But, nowadays the whole process gets completed within 5 to 7 days. 2. INTERNET DRIVEN INFORMATION ERA: With an increase in

internet usage and its increasing spread, it has become easier for people to get informed about everything at their home only. Now they don’t have to waste time in gathering information before taking any financial step. Every information is now-a-days is available on the net. 3. BUSINESS PROCESS MONITORING: It has become easier fo0r 

 people to track every event in a business process. It has resulted in more transparency in every aspect of business processing.

4. E-BANKING FACILITY: More no. of people in urban sector are

moving towards e-banking and credit card facilities etc, which has made   payment of premium much easier, convenient and hassle free for  customer.

E. LEGAL FACTORS: 1. REGULATORY

BODIES:

IRDA

(Insurance

Regulatory

Development Authority) keeps on changing policies related to insurance which makes difficult for the companies to adopt quickly. 2. RENEWAL OF REGISTRATION: An insurer, who has been

granted a certificate of registration, should have the registration renewed annually with each year ending on March 31 after the commencement of the IRDA Act . 3. REQUIREMENTS AS TO CAPITAL: The minimum paid up

equity capital, excluding required deposits with the RBI and any  preliminary expenses in the formation of the country, requirement of an insurer would be Rs 100 crore to carry on life insurance  business and Rs 200 crore to exclusively do reinsurance business as per Section 6.